Wednesday, August 11, 2010

Post 2500 - The Free Market

Conservatives, not just progressives, often fail to remember that free market principles are not something one applies to a society. They are like gravity, always present. Adam Smith's invisible hand was a description of how things work, not advocacy for how things should work. Market principles continued within communist regimes. Governments may ignore them or try to counteract them, but they remain. Ignore or fight against them too much, as in communism, and gravity eventually brings you to earth.

The free market is not the only operating force, of course. As with gravity, other forces can be brought to bear to harness it or hold it at bay for some purpose, such as throwing a stone or building an airplane. Affection, vengeance, drive for power, moral principles - all these can work to channel or oppose the self-interest mechanisms of the market. These are in fact necessary countervailing forces, as they are often the basis of long term "self-interest" in a broader sense. We like to have family and friends, we like to believe our lives have meaning, we give up resources to build systems of law and fairness to inhabit. Corruption - a type of self-interest that does not have regard for these other forces - can harness the free market to benefit the few, leaving only scraps of value outside the centers of power. The free market will continue to work in both places, whether on the scraps or among the cronies, but these circles will then operate independently.

4 comments:

I had someone arguing with me the other day that the free market was a bad system because it doesn't reward virtue (as if his preferred economic system would). To me it's like complaining that evolution doesn't reward virtue -- or, you say, gravity. One thing free market forces do reward is the ability to distinguish reality from wishing. If the free market isn't producing a result that we favor, we'll have to intervene with resources of some kind. I'd just like the resources to come from the people who object to the result. Same with gravity: if you want to live 10 feet in the air, build your own tower.

It is amusing to me to hear people say how the free market system has "failed". As though there were any other way to do things... Gravity has failed because too many people jump off bridges and die.

I remember reading that in the late soviet union, the factories had started paying their workers in the items that they were manufacturing, like paint or socks. So the workers would go home and barter the item (socks) for the stuff that they needed (food). Voila, free market!

As Milton Friedman points out, there is also virtue in the market - precisely because it reflects reality. When people trade fairly, each is better off, for each has acquired something he wants at least marginally more. Trade also requires cooperation, and to have something to trade, you must produce something that someone else actually desires. Socialism is a market modification based on a good impulse of community preservation - at least, it can be based on that. But this is no guarantee that the community actually will be better off.

In William Bradford's Of Plymouth Plantation, he records that the first year they could plant, everyone worked a common field. Come harvest time, the colony split the harvested grain equally among all families...and everyone had near-starvation rations.

The next year, each family got their own plot, and were promised the rewards of using their own grain (or selling it to the Colony sponsors). They had an abundant harvest, and celebrated greatly.

(Humorously, I think this celebration is part of the legend of the original Thanksgiving feast...but Bradford only mentions it in passing, while recounting the failed collectivism and the successful individual farms.)

Yet another example of the law of human nature known as the Free Market.